CNS Canada — ICE Futures Canada canola contracts were slowly clawing their way back after dropping to their weakest levels in three months over the past week.

The market likely has more room to the upside, although weather conditions will be a major factor driving prices through the summer months.

“Canola was ridiculously cheap relative to soybeans,” said Ken Ball of PI Financial in Winnipeg. He estimated canola had lost about $45 per tonne relative to soybeans, leaving room for a correction higher.

In addition to end-users, who should see canola as a bargain, Ball said speculators were major participants in the market. Those traders often trade canola against soybeans, buying one and selling the other.

“They pushed it as far as they could, and are now going back the other way.”

Statistics Canada released updated acreage estimates on Wednesday, pegging canola area in the country at 20.02 million acres — up by nearly 700,000 acres from an earlier forecast, but in line with trade guesses and the year-ago number.

“In the grand scheme of things, this (larger acreage) doesn’t change anything,” said Mike Jubinville of ProFarmer Canada.

“Whether it’s 19, 20 or even 21 million acres, I think the demand component of canola will continue to be very strong and we’ll be able to consume it… so we go right back to weather issues and how the crop is developing into July,” he added.

Ball agreed, noting “there are no major weather issues with crops on both sides of the border.”

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow him at @PhilFW on Twitter.